Incidents:
On April 30, 2024, Cathay Biotech released its 2023 annual report and first quarter report: achieved operating income of 2,114 billion yuan in 2023, a year-on-year decrease of 13.39%; realized net profit of 367 million yuan, a year-on-year decrease of 33.75%; realized net profit withholding of 307 million yuan, a year-on-year decrease of 44.67%; gross sales margin of 28.79%, a year-on-year decrease of 6.45 pcts; net cash flow from operating activities was 569 million yuan, year-on-year decrease of 5.77pct; net cash flow from operating activities was 569 million yuan, year-on-year decrease of 5.77pct. A decrease of $2.34 billion.
In the 2023Q4 quarter, the company achieved operating income of 549 million yuan, -9.07% year on month, +2.55% month on month; realized net profit of 53 million yuan, -21.53% year on year, -26.92% month on month; net profit after deducting non-return to mother was 51 million yuan, -11.54% year on year, -3.82% month on month; net cash flow from operating activities was 39 million yuan, -115 million yuan year on month, and -167 million yuan month on month. Gross sales margin was 29.70%, -4.98 pct year on year, +3.64 pct month on month; net sales margin was 10.06%, -3.51 pct year on year, -6.55 pct month on month.
At the same time, the company announced the first quarter report. In a single quarter of 2024Q1, the company achieved operating income of 685 million yuan, +35.43% year over month; realized net profit of 105 million yuan, +83.25% year on month, +99.96% month on month; net profit without deducted return to mother was 103 million yuan, +124.96% year on month, and +103.19% month on month; net cash flow from operating activities was 215 million yuan, +136 million yuan year on month. Gross sales margin was 28.68%, -5.35 pct year on year, -1.02 pct month on month; net sales margin was 15.61%, +1.39 pct year on year, +5.55 pct month on month.
Investment highlights:
Revenue and profit declined in 2023, putting pressure on the company's performance
In 2023, it achieved operating income of 2.114 billion yuan, a year-on-year decrease of 13.39%; realized net profit to mother of 367 million yuan, a year-on-year decrease of 33.75%. Among them, in 2023, the company achieved gross profit of 609 million yuan, a year-on-year increase of -252 million yuan; a year-on-year expense of 220 million yuan, a year-on-year increase of 28.98 million yuan in asset impairment losses, a year-on-year increase of 560,000 yuan, credit impairment losses of 6.27 million yuan, and a year-on-year increase of 12.95 million yuan in losses. The cash flow from the company's operating activities in 2023 was 569 million yuan, a year-on-year decrease of 234 million yuan, mainly due to the return of the company's input tax withholding in the previous period. In terms of period expenses, the company's sales expenses rate in 2023 was 1.81%, -0.04pct year on year; management expenses ratio was 8.70%, +0.97pct year on year; R&D expenses rate was 8.95%, +1.26pct year on year; financial expenses ratio was -10.00%, +2.09pct year on year, mainly due to the decline in exchange earnings due to fluctuations in the US dollar in the current period.
In terms of products, in 2023, the company's long-chain binary acid series achieved a production volume of 65,700 tons, a sales volume of 60,000 tons, a year-on-year sales volume of +2.22%, and achieved operating income of 1,908 billion yuan, -8.99% year-on-year, gross profit margin of 37.86%, a year-on-year decrease of 2.83 pcts; the bio-based polyamide series achieved a production volume of 103,000 tons, or -49.03% year-on-year, achieving sales volume of 0.76 million tons, 31.34% year-on-year, and achieved operating income of 154 million yuan, or -33.27%. The gross profit margin was -17.99%, down 10.65pct year over year.
In 2023, Q4 achieved net profit of 55.19 million yuan, a decrease of 33.68 million yuan over the previous month, and realized gross profit of 163 million yuan, an increase of 024 million yuan over the previous month, an increase of 115 million yuan over the previous period, an increase of 58.4 million yuan over the previous month, income tax expenses of 1.42 million yuan, and a decrease of 7.19 million yuan over the previous month.
2024Q1 Net profit increased month-on-month, and the company's operations are improving
According to the company's first quarter results report, 2024Q1 achieved net profit of 107 million yuan, an increase of 51.67 million yuan over the previous quarter. Affected by the recovery in downstream demand, the company is seizing market opportunities, increasing product sales, and making every effort to expand the new product sebacic acid market and increase customer share. As a result, sales revenue of long-chain dibasic acid has risen sharply compared to the same period last year. The company's net profit returned to mother was affected by this, which rose sharply compared to the same period last year. 2024Q1 achieved gross profit of 196 million yuan, up 33 million yuan from month to month. In terms of expenses, 2024Q1 sales expenses were 12.29 million yuan, up 1.51 million yuan; management expenses were 43.24 million yuan, down 9.64 million yuan from month to month; R&D expenses were 44.78 million yuan, down 17.93 million yuan from month to month; and financial expenses were -37.42 million yuan, down 26.54 million yuan from month to month. Asset impairment losses in 2024Q1 were 5.9 million yuan, up 7.1 million yuan from the previous month; credit impairment losses were -2.69 million yuan, down 6.19 million yuan from the previous month.
Cooperate with China Merchants to accelerate the application of bio-based polyamides
Kaisai Biotech signed a business cooperation agreement with China Merchants Group in 2023. According to the agreement, China Merchants Group will make maximum commercial efforts to promote and implement the use of Kaiser bio-based polyamide products. Based on the characteristics of the company's products and the deep cooperative relationship between the two parties, the company and China Merchants Group are jointly promoting the application of relevant bio-based materials in the fields of containers, construction, photovoltaics, logistics, etc. In the future, the company's batch sales to customers within the China Merchants Group system will promote the digestion of new production capacity.
Profit forecasts and investment ratings estimate that the company's 2024-2026 revenue will be $34.07, 60.01, and 9.537 billion yuan, respectively, and net profit to mother will be $535, 8.49, and 1,311 million yuan, respectively, corresponding to PE 56, 35, and 23 times, respectively. Considering the company's future growth, it will maintain a “buy” rating.
Risks suggest a decline in downstream demand, new production capacity contributing to performance expectations, fluctuations in raw material prices, changes in environmental protection policies, and a sharp decline in the economy.